Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • US property sales drop spreading concern that economic recovery is slowing

    Residential property sales in the US plummeted in July, falling 27.2 per cent from the previous month, the latest figures show. Sales fell to 3.83 million, the lowest level since the National Association of Realtors (NAR) began publishing its report in 1999.

    They were widely expected to fall in the wake of the ending of the homebuyer tax credit on April 30 which is widely regarded as having boosted sales, but few expected such a dramatic fall.

    The news will increase fears that the US is heading for a double dip in its real estate market and the fact that sales decreased in each region of the country during the month will add to this.

    The latest report from the NAR also shows that sales of distressed properties now account for about a third of all sales, some 32 per cent. Single family home sales, which account for the majority of sales, fell 27.1 per cent to 3.37 million, the lowest rate since 1985

    Analysts are concerned that the gloomy news in the real estate sector could lead to poorer economic growth which is likely to have effects beyond the US. “The disappointing US home sales data has investors worried that the global recovery is unravelling,” said Chris Lafakis, an economist at Moody’s.
    .


    Read complete news here:-

    http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=9925&cat_id=4
    CommentQuote
  • Needs some patience ...

    Originally Posted by Saurabh01
    Here everyone is talking about the economical problem. Even my US friends say the situation is not improving. . But everyone is saying market is bullish. If you look the senesx ,IT recruitment, auto sector and banking there is no sign of depression. Whatever we are discussing here, are those are a hypothetical analysis or worst scenario?
    There is no sign to relief in the Realty. Few days back, I have visited some builder site and I was surprise to see negative policy. Earlier, the ready possession/ongoing buildings were selling at higher rate but now the new buildings are on higher rate.
    I have written this because there is not a single dip after the mid 2009 and we are still hoping for crash in the economy. I would be happy if I will see 15% dip in the Pune real estate and quite sure not possible in the near future.


    Stock market can go up or down even 10% in a day. But being highly unregulated and people having marriage-type attachment to homes, besides it being very difficult to get out of high-debt homes quickly, the Realty market will decline only at the fag end of a fear cycle.

    That takes time and by that time the stock market has already hit bottom. That is when you will see RE market take a dive. First volume will crash and afer -12 months or so price will decline especially when the job (and therefore, income) scene gets hit.

    Given the enormous buildup of stormy clouds over most of the world's econmies and especially over the West and Japan, you can rest assured that Realty too will see serious declines and distress. Matter of time.

    cheers
    CommentQuote
  • Originally Posted by realacres


    pjain,

    I completely agree that banks are the biggest villains who allowed restructuring of loans possible, else there would have been atleast 50% correction last year.


    Also thes bankc HDFC, ICICI use bad practice. On floating loan for existing customers they keep on increasing loan rate but offer teaser rates to new ones. Even though RBI governor suggest them to use same floating rate for old and new he can't do much against private bank lobby.
    CommentQuote
  • Originally Posted by realacres
    Residential property sales in the US plummeted in July, falling 27.2 per cent from the previous month, the latest figures show.



    ohh yes.. its true.. a beach house in florida (2BR) is going for 30k now .. :)

    but rentals are picking up.. $900 - $1100 for 1BR with 900-1100 sq ft area ..

    i wud say buy the house on mortgage and extract your mortgage by putting that on rent..
    CommentQuote
  • Originally Posted by m_square
    ohh yes.. its true.. a beach house in florida (2BR) is going for 30k now .. :)

    but rentals are picking up.. $900 - $1100 for 1BR with 900-1100 sq ft area ..

    i wud say buy the house on mortgage and extract your mortgage by putting that on rent..


    can you share the pics, ad etc ?
    30K USD ??? 14 Lakhsyou mean ?
    :)

    hey its time for US to let Indian buy in their country.
    Is there any place where this suggestion can be sent to US policymakers?

    And as earlier I posted Greece sold off its PARADISE like islands to rest of World .....

    man they were ..... No words...



    After GATT i think world needs freedom for Migration ...

    Qualify certain criteria and migrate to whichever part of world...
    At least one can choose Value for Money....
    CommentQuote
  • Originally Posted by frugality
    can you share the pics, ad etc ?
    30K USD ??? 14 Lakhsyou mean ?
    :)

    hey its time for US to let Indian buy in their country.
    Is there any place where this suggestion can be sent to US policymakers?

    And as earlier I posted Greece sold off its PARADISE like islands to rest of World .....

    man they were ..... No words...



    After GATT i think world needs freedom for Migration ...

    Qualify certain criteria and migrate to whichever part of world...
    At least one can choose Value for Money....


    Anyone having residence permit i.e. work visa (H1, L1 etc.)/ green card can buy a property in US. You can give it a try :D
    CommentQuote
  • Happy Krishna Janmashtami

    Wishing all of you here a very happy Krishna Janmashtami:)
    Attachments:
    CommentQuote
  • Buyer Can Opt Out Of Housing Project If Possession Is Delayed

    Sun Aug 29, 2010
    Source:- 3dsyndication

    A buyer is entitled to opt out of a housing project if there is delay in delivery of possession of the house by the real estate developers, the National Consumer Commission has held.:)

    The commission said that the buyer is also entitled to refund of entire money with reasonable interest and any deduction on the said amount is unjustified.

    "The petitioner was fully justified in opting out of the (hire-purchase) scheme and demanding refund of the money that she had paid along with interest," it said.

    The commission passed the order on a petition of Agra resident Indira Gupta seeking quashing of Uttar Pradesh state commission direction to deduct 20% from the amount to be refunded to the complainant by the Agra Development Authority.

    "We direct that Rs66,000 along with 15% interest be paid to Gupta by the authority, as ordered by the District Forum, within six weeks along with Rs2,000 as cost of litigation," the commission bench headed by president justice Ashok Bhan said:).

    "The fact that the authority had erred in not giving the possession of the house to Gupta as envisaged under the scheme and in the absence of any rules and regulations by which 20% could be deducted from the refunded amount, we are unable to uphold the order of the state commission and therefore set it aside," the commission said.

    It noted the authority admitted that there has been long delay in completing the development work and construction of the houses. "Even after several years, the project could not be fully completed," the commission said.
    It rejected the contention of the authority that the state commission had rightly ordered deduction of 20% from the amount since Gupta had opted out of the scheme without any justification:).


    Earlier, the petitioner contended that she never defaulted in the payment schedule as is evident from the fact that these were deposited with the Oriental Bank of Commerce, extension counter, for the Agra Development Authority.

    Gupta had in 1989 applied for a Mini Middle Income Group House and in 1990 she was allotted one.

    When Gupta was not given possession even after many years, she sought refund of money with interest along with compensation of Rs1.73 lakh from the authority.

    She subsequently filed a complaint with the District Forum alleging deficiency in service and got relief:).

    But the UP state commission modified the forum's order directing deduction of 20% from the refund money, which Gupta challenged in the apex consumer body.
    CommentQuote
  • 29 pc Slump in Realty Focused PE Funds

    Aug 13,2010
    Source:- IRN

    Money raised by realty focused private equity funds tanked to a six year low of USD 7.3 billion across the globe in April-June period of this year as institutional investors remained hesitant about committing capital. According to a report by global research firm Preqin, “this was the lowest quarterly fundraising total since Q3 2004, when 30 funds raised an aggregate USD 6.1 billion,” The report noted that private equity real estate funds are still struggling to raise capital in the current economic environment.

    In the April-June quarter, 20 real estate funds made aggregate commitments of USD 7.3 billion, down 29.12 per cent from USD 10.3 billion in the year-ago period. Besides, the aggregate set target of raising funds has also steadily fallen in recent quarters, as fund managers have started setting more modest targets. “The number of funds currently in market has fallen in Q2 2010; this is due to a number of fund managers abandoning their fundraising efforts because of difficulty in garnering investor commitments,” the report added. It is clear that the fundraising environment remains extremely competitive and that the recovery, which many predicted, is yet to occur.

    “There has been a severe decline in the performance of real estate funds, and consequently the performance of many institutions’ real estate portfolios, since the onset of the economic downturn. This has led to a large number of investors re-evaluating their real estate strategy, with a number increasingly looking towards core investments,” Preqin said. During 2009, 93 funds committed USD 40.50 billion, while in 2008, 228 funds raised an aggregate USD 134.30 billion.

    North America focused funds raised USD 5.4 billion, accounting 74 per cent of capital during the quarter under review, four Asian and rest of the global funds stood at USD 1.2 billion while five European funds garnered USD 70 million, it said. Nevertheless, there have been some encouraging signs for firms raising private equity real estate funds. Of all the funds that have closed during 2010, around 20 per cent have exceeded their fundraising targets. While in the corresponding period in 2009, the figure was six per cent.


    Btw, in other classic eg. of over-leverage, realty major DLF may withdraw from the much-hyped affordable houses, stating low margins under the scheme are unattractive as the firm grs with 25 per cent rise in net debt to Rs 18,463 crore. Other realtor, Ackruti City profits have dipped by 38% as well.
    CommentQuote
  • But there are huge hidden costs ...

    Originally Posted by frugality
    can you share the pics, ad etc ?
    30K USD ??? 14 Lakhsyou mean ?
    :)

    hey its time for US to let Indian buy in their country.
    Is there any place where this suggestion can be sent to US policymakers?

    And as earlier I posted Greece sold off its PARADISE like islands to rest of World .....

    man they were ..... No words...



    After GATT i think world needs freedom for Migration ...

    Qualify certain criteria and migrate to whichever part of world...
    At least one can choose Value for Money....



    Guys,

    I wil show you very decent independent houses with quarter acre plots going for $100 only!!!

    But there will be substantal hidden costs. Unpaid taxes, repairs, etc running into 10s of thousands of $$$. Besides, once upmarket areas have gone down steeply and are now dangerous areas with drugs and serious crimes soaring.

    Then there is the ultimate cost of not being able to get a job.

    If you can overcome all these, you can get some very beautiful homes in very scenic areas for less than the price of a second hand car!

    I prefer Indian homes with all the polution and dust and dirt. At least, there are enough greater-fools behind me to keep the prices rising well above current sky-high levels.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Guys,

    I wil show you very decent independent houses with quarter acre plots going for $100 only!!!

    But there will be substantal hidden costs. Unpaid taxes, repairs, etc running into 10s of thousands of $$$. Besides, once upmarket areas have gone down steeply and are now dangerous areas with drugs and serious crimes soaring.

    Then there is the ultimate cost of not being able to get a job.

    If you can overcome all these, you can get some very beautiful homes in very scenic areas for less than the price of a second hand car!

    I prefer Indian homes with all the polution and dust and dirt. At least, there are enough greater-fools behind me to keep the prices rising well above current sky-high levels.

    cheers


    Excellent. All the while keep telling people that how conditions are bad to buy a house and how world is at the brink of total collapse at the same time indicate that "there are enough greater-fools behind me to keep the prices rising well above current sky-high levels".

    Its now hard to trust veracity and genuineness of your comments, opinions, suggestions or advises

    No offense intended, if hurt unintentionally sorry for the same.
    CommentQuote
  • Another US recession? 30% chance, says Greenspan

    http://business.rediff.com/slide-show/2010/sep/02/slide-show-1-greenspan-says-30-percent-chance-of-us-recession.htm

    The chances of the United States economy slipping into another recession are close to 25-30 per cent, a noted American economist said.
    "I see a third to fourth of a chance of a double-dip (in the US economy)," noted American economist and former chairman of the Federal Reserve of the United States, Alan Greenspan, said while addressing an audience through video-conferencing during an award function in Mumbai on Wednesday.
    The chances that the US might slip into another recession are 25-30 per cent, Greenspan said.
    According to him, to reduce the double-dip recession probability, recovery in asset base
    CommentQuote
  • Lehman says two units need help to avoid failing

    BANGALORE: Two struggling units of Lehman Brothers Holdings Inc, the bankrupt US investment bank, need hundreds of millions of dollars in capital to stave off failure that could cost Lehman billions, court documents show.

    Aurora Bank FSB, formerly known as Lehman Brothers Bank, has struggled to meet capital requirements as regulators have limited its ability to offer new certificates of deposit.

    The other banking unit, Woodlands Commercial Bank, faces similar restrictions from the regulator due to capital requirements, complicating efforts to sell the units.

    In a filing with a US bankruptcy court on Wednesday, Lehman said it was faced with a choice of either allowing the units to fail or injecting capital into their balance sheets to recover significant value for its creditors.

    Failure to resolve the capital issues would result in estimated losses of between $1.2 billion and $3.6 billion, Lehman said.

    Lehman said based on June 30, 2010 regulatory reports, the values of its equity interest in Aurora and Woodlands were at $677.6 million and $741.6 million, respectively, for a combined value of $1.42 billion.

    Lehman said it will transfer $477 million in cash to Aurora.

    It noted that since February 2009, Lehman has taken a series of steps to support the banks' capital levels, including making a $200 million cash contribution to Woodlands and an additional $72 million capital commitment that has not been drawn upon.

    Lehman hired hundreds of its former bankers and other financial experts to help it unwind the complex contracts that were left in disarray when it filed for bankruptcy protection on September 15, 2008, the largest US bankruptcy filing in history.

    The case is In re: Lehman Brothers Holdings Inc, US Bankruptcy Court, Southern District of New York, No. 08-13555.
    CommentQuote
  • Dollar, Yen, Swiss Franc May Beat Go_ld in Any New Recession

    http://www.bloomberg.com/news/2010-09-03/roubini-says-swiss-franc-and-dollar-may-beat--in-any-new-recession.html

    “If there was a double-dip recession, increasing risk aversion, some assets are going to be preferred, and will be one of them,” Roubini said today in an interview on Bloomberg Television’s On The Move with Francine Lacqua. “But in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the market.”

    Unable to understand this logic Is it another ploy of US to avoid other countries & individuals not to buy gol_d (man, why has mod banned this word, go_ld?? :(). When Fed is in process of printing more & more $$, how will it appreciate further??:bab (38):

    “Job creation is going to be very, very mediocre,” he said in an interview in Cernobbio, Italy. “It’s going to feel like a recession even if we’re not in a recession.”

    I feel that further Indian growth will be more or less domestic market driven rather than global. Again the exports growth would be limited to Asia-Pacific region, with US & EU stagnated.
    CommentQuote
  • Lavasa Update

    Man, some latest updates about lavasa:-

    The state govt has formed a committee to look into the irregularities committed by Lavasa. This includes the verification of clearances from all govt agencies & whether the land was acquired by forceful means from the farmers. This was announced today by Narayan Rane, Revenue Minister (though he is no saint either). The report will be submitted in 15 days. Man, it is good to see this happening, seems Congress wants to leverage itself against NCP using this Lavasa project. Though it may be done out of political compulsion, at the end of the day, it is going to have positive impact on land acquisitions & RE in general:). The farmers too would gain:).
    CommentQuote